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Affordable labor costs and free trade agreements with several countries are positioning the country in the pole position to attract foreign investment from some of the largest worldwide footwear players.
Wishing to give a strong signal against the protectionist movements recently emerging in several parts of the globe, representatives of footwear national associations and industry chambers of various continents signed a joint declaration in support of free and fair trade
Earlier this month, I attended the FDRA Executive Summit, where I learned that while footwear sales have risen for the seventh straight year, same-store sales actually contracted -0.9 percent in 2017. According to a report released by FDRA, “Shoe Review Footwear Report 2017,” the disparity between demand and actual sales will continue to spur fallout for the sector through 2018 as the industry responds to dull sales and declining store numbers. Footwear retailers are predicted to close hundreds of stores nationwide. On the contrary, there are still new stores being built that are having big success.
Exchange rate variations have sharply changed the panorama of the Brazilian footwear exports in recent years. With a sharp drop in sales to the United States, registered since 2017, Argentina has now taken, for the first time, the first place among the destinations for Brazilian footwear.
In the first quarter of 2018, Argentina was the destination of 2.4 million pairs of Brazilian shoes, with a total value of 39.14 million US dollars, up by 14.4% and by 9.8%, respectively.
Heitor Klein, Executive President of Abicalçados, the Brazilian Shoe Manufacturers Association, estimates that the appreciation of the Brazilian real against the US dollar, which could intensify during the year, has had a significant impact on exports and he adds: "With the trend of falling dollar continuing or intensifying even more during the year, we will have significant problems in exports".
The United States have been the main destination for Brazilian exports since the late 60's: this market, very price sensitive, has been decreasing the purchased from Brazil since 2017, and was surpassed by Argentina in the first quarter of 2018. In fact, this occurs after exports of Brazilian footwear have fallen by 14% last year (in both pairs and values). In the first quarter, the US bought 2.8 million pairs, paying 37.13 million US dollars for it, resulting in declines of 11.5% in volume and 22.6% in value, compared to similar period of 2017.
The third destination was France, to where 2.76 million pairs were exported with a total value of 18.26 million US dollars, up by 52.4% and 19.3%, respectively, compared to the same period last year. However, "France imports, basically, slippers and injected Brazilians, products of lower value-added and therefore with less impact on the trade balance", comments Klein.
In overall terms, between January and March, Brazilian footwear exports reached 30.47 million pairs, which generated 250.12 million US dollars, down by 2.7% in volume and by 3.4% in revenue, compared to the similar period in 2017.
Reference: World Footwear Yearbook, 2018
The first semester closed with a positive performance by the footwear industry (growing from similar period last year and above their strategic target). Different performance registered by the leather and leather products industries
The leather industry, the second largest export earning sector of Bangladesh, registered a downward trend in exports earnings in the past eight months. In 2016-17, for the same period export earnings totaled 827.62 million USD, when in 2017-18 it has reached 784.97 million USD, representing a decline of 5%.
Leathergoods And Footwear Manufacturers & Exporters Association of Bangladesh (LFMEAB) signed a Memorandum of Understanding & Cooperation Agreement with Vietnam Leather, Footwear and Handbag Association (LEFASO) Monday at LFMEAB conference room.
The agreement was exchanged between LFMEAB and LEFASO at Pan Pacific Sonargaon, Dhaka in the presence of Mr. Tran Dai Quang, President of Vietnam and Mr. Tofail Ahmed, Commerce Minister of Bangladesh, among others, said a statement. Under the agreement, TBS Group - member of LEFASO and one of the top 5 footwear manufacturing and export companies in Vietnam -agreed to invest $100 million in Bangladesh leather and footwear sector, which is likely to create 10,000 new jobs.
The MoU aims to strengthen collaboration and develop mutually beneficial relations between LFMEAB and LEFASO. Both parties will facilitate joint activities, assistance in building the cluster, sharing information and knowledge. Both parties agreed to work towards common goals, including closer cooperation between the footwear industries in both countries.
During the signing ceremony, LFMEAB President and Managing Director of Picard Bangladesh Limited Mr. Md. Saiful Islam welcomed LEFASO delegation and commented that the Vietnam footwear industry has been growing significantly in export markets and consistently maintained its position as the second largest footwear exporter globally. "TBS Group's investment decision in Bangladesh is a timely decision reminding that Bangladesh has many comparative advantages such as preferential market access and competitive costs and disciplined workforce and favorable investment policies", he added.
Mr. Diep Thanh Kiet, Vice Chairman of LEFASO sought LFMEAB's support for setting up a production capacity in Bangladesh. "After succeeding with this project, TBS Group will also encourage other companies from Vietnam to invest in Bangladesh." he said.
LFMEAB President Mr. Md. Saiful Islam and the Vice Chairman of LEFASO Mr. Diep Thanh Kiet signed MOU for and on behalf of LFMEAB and LEFASO respectively.
The Vietnamese footwear industry is expecting an increase of foreign direct investment (FDI) as a result of some shift movements in investment from China to Vietnam. A slowdown in recent FDI flows might be the result of the US withdraws from the Trans-Pacific Partnership agreement in late 2016. However, the local association is optimistic about the enforcement of the Vietnam-EU free trade agreement which should provide a "new surge in FDI flows into the footwear sector". According to local news reports, Nguyen Duc Thuan, Chairman of Lefaso and also Chairman of privately-held TBS Group, confirmed an invite was addressed to Skechers to invest in a sizeable project which might require 20 000 workers to be fully implemented.
In 2017 Brazil's footwear exports reached 127.13 million pairs and 1.09 billion US dollars. An increase of 9.3% in revenue when compared to 2016 and the best financial result since 2013 (1.095 billion US dollars). In volume, the result for the year is only 1.2% higher than the one recorded in 2016, which shows an increase in the prices for the Brazilian products, especially due to the devaluation of the US currency recorded over the past year.
Brazilian footwear industry body Abicalçados has completed an investigative trip to France, carried out between November 25 and December 3, 2017 with a view to increasing Brazilian manufacturers’ share of the shoe market there.
The leathergoods makers and exporters association has decided to organise its recently concluded international sourcing show every year, as the event has received warm responses from the global buyers.
Md Saiful Islam, president of Leather-goods and Footwear Manufacturers and Exporters Association of Bangladesh (LFMEAB), shared the information after successfully organising Bangladesh Leather Footwear and Leathergoods International Sourcing Show (BLLISS) 2017 in the capital's International Convention City Bashundhara.
On November 16, Prime Minister Sheikh Hasina inaugurated the three-day show jointly organised by the commerce ministry and LFMEAB. Buyers, brands and business leaders from more than 20 countries, including China, India, Vietnam and Thailand, took part in the show.
The Leather goods and footwear sector in Bangladesh has long been a secret success story. As the second largest sector after RMG, it holds all the potential to be a sector which contributes significantly to the goal of export diversification, with the added virtue of significant value addition.
The factories present in the sector have long been pioneers of social compliance, fair labour practices and exemplary CSR. The Leather goods and Footwear Manufacturers’ and Exporters’ Association (LFMEAB) requires companies to pass a mandatory audit in order to become a member as well as for membership renewal. The Association, along with its members, was one of the first to introduce group life insurance, worker health cards and occupational health and safety awareness. The tannery area in Bangladesh is one of the few sectors in the country which has worker unionization, and it boasts one of the most harmonious relationships between owners’ and worker union representatives.
In terms of sustainability, the sector is on the right growth trajectory. However, in order to make its mark in international world markets and to survive with competing countries such as China, Cambodia and Vietnam, Bangladesh needs to work on improving productivity and efficiency. The country is falling behind from its competitors such as Vietnam, a country which does not produce any leather, only due to the efficiency factor. To put things into perspective, the leather goods and footwear sector in Bangladesh currently has exports worth over 1 billion USD and the country produces about 310 million square feet of leather annually. Conversely, the leather goods and footwear sector in Vietnam was worth 15 billion USD in 2016 with a projected growth of 15-20% in the next fiscal year. Vietnam does not produce any leather locally. Therefore, the question arises that despite having a substantial source of raw materials, why is Bangladesh yet to realize its full potential in the sector?
The two main reasons behind this are that a substantial portion of the leather produced in Bangladesh is exported in the semi- finished crust stage and as finished leather. The other reason is that the productivity level in the country is way below that of its competitors. Due to production inefficiency, even with a competitive labour force, it becomes less attractive to source from Bangladesh while compared to its more efficient neighbours. Additionally, a lack of skilled middle management and supervisory staff make it difficult for factories to train workers to attain higher efficiency.
What can be done to address this situation? Firstly, sufficient policy support needs to be undertaken by the Government to discourage the export of leather in semi-finished and finished stages and to encourage value addition. In conjunction with this there needs to be a drive to increase efficiency levels, through mid-management training. This can be done through the introduction of industrial training and engineering courses in the tertiary level, organizing factory visits abroad and undertaking factory level training and also bringing in external experts to provide training in local factories. Supervisor training in leadership skills and efficiency awareness is also necessary to create a culture of productivity consciousness in the factories.
Bangladesh has a bright future ahead in the leather goods and footwear sector and the time to act is right now. The sustainability issue is being proactively addressed by the sector, in conjunction with this if there is an active drive to increase productivity levels, the country will be on the right track to achieve its target of 5 billion dollar export revenue from the sector by 2021.
STYLE MODAINPELLE Magazine is one of the prestigious fashion and lifestyle magazine for the leather industry around the world. Published from Milano, Italy highlighting the current and future fashion trend of the leather industry along with different news and aspects on this industry from all around the world.
The government has reduced income tax at source to 0.70 per cent for all the export-oriented sectors, except jute and jute goods sector, which has been enjoying 0.60 per cent tax rate. The source tax for the export industries was increased to 1.0 per cent from 0.70 per cent in the budget for the current fiscal year (FY), 2017-18. The Internal Resources Division (IRD) under the Ministry of Finance issued a Statutory Regulatory Order (SRO), dated August 05, in this regard. The Income Tax Wing under the National Board of Revenue (NBR) issued the SRO with retrospective effect from July 1, 2017. The order will remain effective until June 30, 2018.
ILM as the leader in new media continues to deliver leather industry news and information in innovative new ways. This news represents that, the international community of leather industry is concerned about the infrastructure of Bangladesh. The relocation of Hazaribagh tannery to Savar was very challenging for the industry. However, the government has taken the right initiative so far. Hopefully, if the Savar tannery complex starts full operation, Bangladeshi leather industry will find a new direction.
The government is positively considering a proposal of the leather sector for keeping their loan interest in block account for one year to help the sector cope with the existing crisis, officials said.
The finance minister said the proposals put forward by the leather sector were logical. He also advised the senior officials concerned of the finance ministry to take necessary steps in this regard, they said.
The government is likely to give the tanners scope for making loan repayments within 08 years with one-year moratorium, they also mentioned.
The leather industry is a fast growing and vital component of Bangladesh economy, being the second highest foreign exchange earners after readymade garments. The industry is mostly export related and the usual trade destinations are North America, Europe and some Asian countries. However, the increased compliance demand and monitoring from different renowned international organizations has made the world leaders concerned about environment and human health. Leather sector is not far away from other industrial sectors, to minimize the harmful impacts both on the environment and human health the entrepreneurs and trade organizations are working simultaneously.
Last 3 years ECOLEBAN, an initiative funded by European Commission (under SwitchAsia Program), has been aiming at enhancing the resource efficiency and sustainability of the leather sector in Bangladesh throughout the whole value chain of the leather related products such as, leather, footwear and other leather goods. This initiative aims a Sustainable Consumption and Production (SCP) practice both in industries as well as at all levels of the society in Bangladesh.
One of the clearest examples nowadays to explain the success of SCP is the increasingly common existence of sustainable products. Eco labeled products can help the countries to make their manufacturing sector green and offer its consumers a wider range of environmentally friendly products and services.
Eco-labeling has a number of major benefits and those are the result of public awareness of wanting to be part of a more sustainable world, promoting the consumption of products that respect the environment. Among the main benefits of the eco-labeling are the following:
• Informing consumer choice
• Promoting economic efficiency
• Stimulating market development
• Encouraging continuous improvement
• Promoting certification
• Assisting in monitoring
As the consumers are getting concerned day by day about the leathergoods production and related supply chain, Eco-labeling is an effective way of informing customers about the environmental impacts of selected products, and the choices they can make.
Exports of leather products and footwear have been rising in recent years on the back of diversified products and markets and skill development initiatives in the sector, insiders have said.
They said the shipment of leather products and footwear expanded by 15.55 per cent to $579.07 million in the July-January period of the current fiscal year 2016-17 compared with the same period a year ago, according to data from the Export Promotion Bureau (EPB).
The data also showed exports of leather products and footwear have nearly doubled to US$883.05 million since FY 2012-13.
Talking to the FE, president of Leathergoods and Footwear Manufacturers & Exporters Association of Bangladesh (LFMEAB) Md. Saiful Islam said the country's leather and leather goods sector had the potential, but policy support from the government and sincere efforts from the industry were crucial to tapping such potentials.
He said that sensing the potential of the sector, the prime minister declared the leather, leather goods and leather footwear to be the 'product of the year-2017' and asked all involved to take steps for the betterment of the sector.
"We hope the prime minister's declaration of the product of the year will translate into some policy support for the sector," he added.
In the last few years, entrepreneurs ramped up capacity of the factories, diversified products and markets while focusing on the skill development of workers, the factors, he said, have started paying dividend.
Mr. Islam, also managing director of Picard Bangladesh Limited, said the country's leather factories were "purpose-built" buildings and now they were working to make the sector a model and going beyond the required compliance practices.
"We have also taken a lot of initiatives to go beyond the country's required compliance practices to ensure employees' well-being, more growth and a global reputation for the sector," he said.
He said that the sector employs around 70,000 people and all workers are covered by life insurance.
Mr. Islam said that they are also providing workers with health insurance facilities, though it is not mandatory by the country's labor law and compliance standards.
"Already 17,000 employees of the sector received health insurance cards and we hope within August this year all of the workers will get health insurance cards," he said.
He insisted that they are focusing on welfare and skill development as it is a labor-intensive sector.
Mr. Islam said the entrepreneurs and exporters of the industry had established Centre of Excellence for Leather Skill Bangladesh Limited (COEL) to create skilled workforce for the sector.
"We provided training to about 30,000 workers through the COEL by national and international experts, which have been significantly playing a role in making the sector more productive," Mr. Islam added.
Still, Mr. Islam seeks policy support from government such as the release of raw materials within 72 hours like the garment industry, allowing covered van to go inland container depo (ICD) during daytime and relaxing licencing rules.
He said the government should also make the rules more flexible so that the sector can hire overseas expertise more easily than now.
The current rule has capped foreign agents' fees at 15 per cent of profit and eight per cent of turnover, which prevents entrepreneurs from hiring overseas specialist services and fostering innovation.
"I hope as product of the year-2017, the government will sincerely consider such demands to make the sector more vibrant," he added.
However, Mr. Islam said the government initiative to shift tannery units from Hazaribagh to Savar will significantly help the country's leather sector become eco-friendly and economically viable.
"I think, speedy relocation, central effluent treatment plant and solid waste management system should be ensured in a timely fashion," he added.
In July-January period of the FY 2016-17, the country's leather, leather products and leather footwear exports totalled $743.77 million against the target of $688 million.
"In the July-January period, export income is more than 7.19 per cent of our target," the association boss said.
He said Japan was the country's prime exports destination for leather, leather products and leather footwear accounting for around 18 per cent of the country's overseas sales.
Other major exports destinations are the European Union countries, the USA, Italy, France, Germany, Canada, Poland, the UK, Belgium, and Spain.
New and emerging markets of the sector include Turkey, South Korea, Brazil, Mexico, South Africa, Australia, Russia, China and UAE.
He said the country exports leather shoes, finished leather, travel bags, wallets, belts and some other products.
Leather is the second-largest exporting sector of the country and it has set a target of exporting $ 5.0 billion by 2020.
The LFMEAB has more than 150 member companies who are 100 per cent export-oriented.
While exports of leather products and footwear are on the rise, shipment of finished leather has declined in the last three-four years.
The EPB data shows exports of leather were $397.54 million and $277.9 million in FY 2014-15 and FY 2015-16 respectively. In the July-January period of the current fiscal, exports of leather was $161.91 million against $164.70 million in the same period of last fiscal.
Sector-insiders have said use of leather for making value-added products and footwear are the main reason behind the fall in exports of finished leather.
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On February 8, 2017, the Organization for Economic Co-operation and Development (OECD) issued its Due Diligence Guidance for Responsible Supply Chains in the Garment and Footwear Sector (Guidance).The Guidance promotes a framework, or an outline, of actions to address and reduce the negative human rights impacts of the sector’s business activities. The 186-page Guidance is specifically addressed to the “garment and footwear sector” and is intended to help enterprises in the sector implement the due diligence recommendations contained in the OECD Guidelines for Multinational Enterprises and UN Guiding Principles on Business and Human Rights.
New Balance-the US-based athletic brand- has come out in opposition to the Trans Pacific Partnership, the free trade agreement involving the US and 11 countries from the Pacific region. CEO Rob De Martini announced that New Balance is against the Trans-Pacific Partnership.
Bangladesh has continued to be an attractive destination for Japanese companies to do business due to its lower production cost and labour wage compared to those of 19 countries in Asia and Oceania. In comparison to Japan, the cost of production in Bangladesh is less than half, (49.5 percent), while it is 81.9 percent in China, 73 percent in Vietnam and 80.6 percent in India, according to the latest survey of Japan External Trade Organisation (JETRO).
Current Export performance for the Month of July-December 2015-16